DuPont Changing Their Core Business
The only constant is change
It’s difficult to focus on anything when Russia has just invaded Ukraine. I wrote about what might play out in the oil and gas and chemical markets just about 4 weeks ago if anyone is interested. I don’t think there will be a multinational war, but it’s still disturbing. To the Ukrainians reading this I hope for a future that is better than what we have now.
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I spend a lot of time looking at the chemical industry because I work in it, but one thing that I think the industry has to face is how to do fundamental core change of their business. There are a lot of forces out there including the massive amount of money in technology (Apple, Amazon, Facebook, etc), the challenge of carbon emissions and climate change, scarcity of oil, and consumer sentiment changes.
One company that is embodying this change right now is DuPont. Here’s a high level view of some big milestones that stick out in my mind:
1930s Wallace Carothers and his team invent Nylon and change the world by scaling it up
1950s DuPont goes all-in on polymers such as Mylar, Dacron, Corian, Lycra, Nomex, Kevlar, Tyvek, and Teflon
1990s DuPont gets into agriculture such as pesticides and seeds
2000-2010s PFOA and PFAS issues come to light
2015 DuPont spins the fluorinated chemicals and polymers business
2019 DowDuPont forms and then split into three companies. Dow, Corteva, and DuPont keeps the “specialty chemicals” business
2029 DuPont sells/merges their nutrition and biosciences business to IFF for about $7 billion
2022 DuPont divests the original nylon business and more to Celanese for $11 billion
For the most part many of the polymers that DuPont produces are commoditized specialities. The applications might be niche and might require a very specific solution, but the knowledge at this point is dispersed. Perhaps this was exacerbated through DuPont’s big R&D/engineering consolidation in 2016. Finding a few chemists and engineers to go make some nylon that can compete with DuPont is kind of what Ascend Performance Materials has been doing.
DuPont is continuing to divest themselves from what I think they consider to be low margin or low growth businesses. Just because DuPont might still be able to capture a significant margin on their nylon business does not mean that it’s a business that has a place in the future of the company. The board and shareholders have decided that DuPont will be a completely different company. As my old coworker put it, “the only constant is change.”
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Why Is DuPont Changing?
I suspect that this complete transformation might be a way to escape potential liability from the past. The PFAS scandal comes to mind for DuPont, which led to them spinning off the whole business. The polytetrafluoroethylene business made a lot of money for shareholders until, well, it wasn’t worth it anymore:
When industrial giant DuPont (DD) spun off its performance chemicals division in July 2015, few gave the orphaned appendage much hope. Loaded up with debt and stuffed full of potentially toxic assets—on multiple levels—the new company, re-branded as Chemours (CC), was seen by many investors as a listing garbage scow locked on a one-way course to the bottom of the ocean.
Despite the issues the company’s stock actually has improved since the spin only by about 4%. In January of 2021 a major settlement on the PFOA liabilities was reached for about $50 million dollars.
There is also significant liability in the agriculture business. A former neighbor of mine worked for Bayer and it seemed as if many of the employees wished that the company had never bought Monsanto and all of the liability that came with the company. DuPont shed their agriculture business when it was combined with Dow’s in the form of Corteva.
Corteva recently pulled the plug on their dicamba pesticides as of April 2021 I suspect after a few damning reports emerged about BASF and Monsanto management knowing dicamba drifted and even using this fact as a marketing tool to farmers not using their dicamba resistant seed products:
Monsanto and BASF released their products knowing that dicamba would cause widespread damage to soybean and cotton crops that weren’t resistant to dicamba. They used “protection from your neighbors” as a way to sell more of their products. In doing so, the companies ignored years of warnings from independent academics, specialty crop growers and their own employees.
I’m not aware of any other additional liabilities that former DuPont businesses might have had, but the company is moving quickly to transform their business.
DuPont’s recent acquisition of Rogers Corporation for $5.2 billion and Laird Performance Materials means they are pushing into materials and chemicals used in the electronics industry. They also recently acquired a water purification business in 2019 (interesting). The only other business to me that really stands out is DuPont’s Tyvek business and its application in construction products.
Tyvek is a business that DuPont is growing and they are investing in additional capacity to the tune of $400 million in 2019. Tyvek is interesting because as far as materials go it has application not only in construction via a house wrap or commercial wrap, but also in personal protective equipment, clean room suits, and medical device packaging.
What’s Next For DuPont?
I suspect that DuPont may play to their strengths on the electronic materials and “clean technology” via water purification. I could see DuPont acquiring a complimentary construction products company or additional clean technology companies if they want to stay a chemical conglomerate.
Perhaps DuPont goes the way of a “pure play” and divests their Tyvek business to someone else (Atlas? Tamko?) and goes all-in on electronics chemicals and clean technologies. It’s hard to know what the board is thinking, but I suspect they don’t want to be going to court anymore or having movies made about how they polluted the water.
Future Acquisitions
I’m hearing from readers that Sherwin-Williams is buying the alkyd business from Engineered Polymer Solutions (EPS). I’m not one to just pass around hot gossip via a newsletter so I searched for the alkyd products and it didn’t exist on their website even though a Google search still yields alkyd product pages:
When I go to that page it just doesn’t seem to exist anymore:
My source(s) tell me that this development means there will no longer be any independent alkyd resin producers in North America and to get an alkyd you will have to go through Sherwin, PPG, or AkzoNobel. This is bad news for independent paint and coatings formulators and perhaps even larger players like Axalta. Alkyds are often used as metal primers and are critical for steel construction (think skyscrapers) and infrastructure projects. There is already an alkyd resin shortage on-going in the North American market now and I suspect this will make it worse in the short term at least. Remember when I talked about Sherwin-Williams vertically integrating?